HSBC RE spin-out makes direct investing a key focus

An executive team spin-out from HSBC’s real estate platform wants to do the types of investing their former employer is pivoting away from.

Last summer, HSBC Alternative Investments Limited lost four of its real estate investment professionals: global head of real estate Paul Forshaw, director Toby Evans, director Harry Heathcoat Amory and associate Will Michell. The group had transacted more than $5 billion of real estate deals across the UK, Europe and the US during their decade together at HSBC.

Last week, the HSBC alumni announced the launch of a London-based private equity real estate firm, Blue Noble.

Forshaw said he and his colleagues decided to leave when they perceived an industry-wide strategy change, as banks that invested in direct real estate shifted to investing in third-party funds. He attributed that adjustment to both regulations and banks’ risk appetite. Meanwhile, Forshaw said his ultra-high-net-worth clients preferred to invest directly.

“What is the value from the investment department of the bank putting clients into a fund? I’m not sure there’s a great deal of value-add to justify the fees,” he said.

HSBC could not be reached for comment.

The four-man firm – with at least two hires to come in the next year – is investing at first in the UK and continental Europe, but Forshaw said that after they build a track record, they will likely expand internationally. Blue Noble will have three platforms: asset management; direct investing and funds management.

On two of the three business lines, Blue Noble will be working with Woodman Group, the Swiss investment manager that was a longtime HSBC client. Woodman signed over two European portfolios of real estate assets worth $550 million for Blue Noble to manage and wrote a $100 million check for the debut vehicle, Blue Noble Fund I. Blue Noble also benefits from access to some of Woodman’s infrastructure, including its finance and risk compliance teams. Woodman manages a variety of other investment strategies, including hedge funds and fixed-income, but the firm does not have a dedicated real estate platform.

“Having that infrastructure around was obviously very important to us, because it’s an extremely important factor in today’s regulatory environment,” Forshaw told PERE.

Blue Noble is seeking to raise up to another $150 million for its maiden core-plus fund, likely from ultra-high-net-worth investors. For the next fund, the firm expects to expand to institutional sources of capital.

Blue Noble Fund I utilizes 55-60 percent leverage with a five-year investment period and two one-year extensions. With an investment strategy focused on income-producing assets in continental Europe and the UK, the firm will seek undercapitalized assets to which it can add value. Forshaw said the firm is targeting a 10-11 percent gross internal rate of return.

Blue Noble made its first investment out of the fund this week in a joint venture with Hines. The partners are developing a 600-bed student housing property in Milan.

“What we’re looking to do is not just go in and buy the same type of assets everyone else is, but use our network to unlock deals we see value in,” Forshaw said.

After the Blue Noble team builds its European presence, Forshaw said they are “definitely looking to invest abroad.”

“As the markets change it’s important to be flexible,” he said. “In time, I’m quite sure we’ll be in the US and we’ll be looking further afield to Asia.”